Risk assets made further progress in October, with equities leading the way. Wall Street gained 2.1% and reached a new all-time high, but, as in September, the best returns came outside the US: Japan was up by 5%, Asia ex Japan by 4.5% and emerging markets by 4.2%. Among the major markets only the UK was down (-2.1%) as a strong rally in sterling put pressure on the big overseas earners, which dominate the UK stock market. The improved appetite for risk was reflected in bond markets, with safe haven government bonds flat or down while credit markets produced positive returns, led by US corporate bonds up 0.6%.
As small cap stocks have continued to lag their large cap peers, with the Russell 2000 US small cap index posting returns of 7.8% per annum over the past 3 years compared to 14.5% for the US main board, S&P 500, so the difference in valuations (as measured by price to book) has grown to its widest level in the past 20 years. Could this provide an attractive point to gain exposure to small cap stocks? Whilst valuations have limited predictive power in the short term, in our opinion they are a very reliable indicator of longer-term returns.
I received an email last month from Apple trying to sell me the new iPad. Tech sales are interesting; in essence the purveyor of the object you bought from them all too recently is informing you that it is now a little bit obsolete. Sure, it still works reasonably well but the newer version is incrementally better in every way.
I was very proud to take part in the Remembrance Sunday proceedings in London yesterday alongside my father, a veteran himself. Nobody does these things better than the British and it was indeed a grand occasion which was made even better by the crisp sunny autumn morning. Dad was in his element, meeting up with old friends with whom he had served forty years ago. I was lucky to meet several of them at the regimental lunch which followed. Whilst I marvelled at their stories from days of old, I left the function a bit saddened by the fact that some of these brave men, now in the later years of their life, were not financially secure. Once again, the importance of investing for the long term rang loud and clear.
31st October was meant to be the day the UK finally parted ways with the European Union. It came as little surprise that the deadline was extended, again. As our first Weekly Digest following this date, I had been lining up a thrilling article on Brexit, or rather pondering how to actually make it thrilling. In the end, I felt I could no longer do this, which I’m sure will dishearten readers.